Student loans -- Taking away the free ride for colleges.

From the American Enterprise Institute via Instapundit:

Looking at the rapid growth of student loans and the escalating price of college from a financial perspective, we see a typical interaction of credit expansion and price, quite similar to what happens in a housing bubble or any other bubble. Pushing credit at a sector makes its prices rise. The rising prices, in the cases of both housing and higher education, lead to cries that since the prices are now unaffordable, there has to be more credit. More (and more heavily subsidized) credit the politicians often enough deliver, and the escalation goes on.
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Among the things to be done to improve the student loan-college price spiral is to address the free riders in the student loan sector: namely, the colleges. They should cease to be free riders on other people’s credit risk and credit losses. Here I have one firm recommendation and one further possibility to suggest.

First, the colleges should definitely have “skin in the game” in student loan credit risk, just as the need for “skin in the game” was one of the biggest lessons of the mortgage bubble.

Each college should be financially on the hook for at least 20% of the losses its own defaulting students cause. This would certainly improve what is now a complete mismatch in incentives, and thus improve educational, as well as financial, performance.

A second idea (wittily suggested to me by Arthur Herman of the Hudson Institute) is one which should strongly appeal to everyone on the leftward side of this discussion. It is to have a wealth tax on rich colleges to help fund the cost of student loans.

My version of this idea is that the wealth tax should apply only to the top 1% of college endowments (of course not to the 99%). There are about 2,800 four-year degree granting colleges, so the top 1% would be 28 of them. You could easily guess most of the prestigious names on this list. They represent an “inequality” problem of a severe kind: the top 1% of endowments have 51% of the total college endowment wealth. This is obviously unfair! So as suggested by the current darling of the left, Thomas Piketty, a 5%-10% wealth tax on the assets of this unfairly advantaged 1% might seem about right.

However, in my proposal, a college or university would be exempt from this wealth tax if less than three of its faculty members have publicly argued for higher taxes on the wealthy. But if three or more of its faculty members have promoted more taxes on the wealthy, the tax would apply to that member of the college 1%.

I imagine that with this criterion, all 28, except perhaps the University of Chicago [Editor's Note, Univ. of Chicago was the home of Milton Friedman], would be paying. A higher degree of poetic justice would be hard to find.

I think he's on the right path. The "tax" in the Elite schools is mostly a cheap shot, since they are dominated by Progressive.

I think the Schools should be the one who have to make the loans as well as be on the hook for them. Make them 100% financially responsible. Add another requirement, any debt not paid after 6 years shall be forgiven. 6 years is 50% longer than it took to earn the degree, so it's about the right duration. By making the Universities having some skin in the game, many soft/fuzzy/squishy Department/Studies areas will disappear, since someone getting a "comparative religion" degree can't make a living, after 6 years their debt disappears and eventually the funding for those Department will disappear, since there will be no students studying those fields.

Win-Win